Final Say-on-Pay and Say-on-Golden Parachute Rules: Benefits of Voluntary Annual Golden Parachute Disclosure Continue to Be Limited; Minor Changes from the Proposal Include Giving Companies More Time to Make Frequency Determination, Limiting Exclusion of Say-on-Pay or Frequency Shareholder Proposals, No Golden Parachute Disclosure in Third-Party Tenders, and Two-Year Say-on-Pay Delay for Smaller Reporting Companies

Sullivan & Cromwell LLP - January 31, 2011

The SEC, by a 3-2 vote, has adopted final rules implementing non-binding “say-on-pay” votes, say-on-pay frequency votes and votes on “golden parachutes.” The new rules were adopted largely as proposed in October, with relatively minor changes in response to public comments. In particular, the SEC declined to make modifications that would have provided issuers with an incentive to make voluntary annual golden parachute disclosure. Instead, the SEC confirmed that it views ordinary course salary increases and equity grants as the type of changes that would require a separate vote as part of a business combination, notwithstanding prior golden parachute disclosure as part of a say-on-pay vote. Similarly, the SEC will view a change that results in a change-in-control tax gross-up becoming payable as triggering the requirement for a separate vote, even if the gross-up becomes payable only because of an increase in share price following the last say-on-pay vote.

This memorandum summarizes the new rules, focusing on the changes affecting the drafting of 2011 annual proxy statements, future annual proxy statements and the golden parachute vote.